U.S. Department of Housing and Urban Development
Office of Housing
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Special Attention of: Notice H 93-90 (HUD)
Regional Administrators
All Regional Directors of Issued: 12/07/93
Housing Expires: 12/31/94
All Field Office Managers ______
All Directors of Housing Development Cross References: Handbook 4310.5
All Directors of Housing Management REV-1
All Chief Property Officers
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Subject: Fiscal Year 1994 Special Marketing Tools
Attached are the special marketing tools which, in addition to those
contained in Handbook 4310.5, REV.1, may be used in connection with the
sales of single family acquired properties during Fiscal Year 1994. The
attachment also includes a discussion of other select sales procedures and
policies for which the Field Offices must be mindful. There is an
indicator in the Index as to which tools are optional for Field Office use
and those which are mandatory.
Each of the optional marketing tools, used alone or in conjunction
with others, may be utilized by each Field Office, as deemed necessary and
appropriate by Field Office management. While Field Offices may authorize
the use of multiple marketing tools on each property, the total cost to the
Department should not exceed $2,500. Since HUD has contractually agreed to
pay the amount specified in Line 5 of the Sales Contract, this restriction
is only applicable to those additional marketing tools authorized, such as
the Move-in or Moving Expense Allowance and the Property Inspection
Service. For this reason, it is particularly important that careful
consideration be given to those tools which are necessary to market
properties in a cost effective manner. In reaching a decision to use a
marketing tool, factors such as cost, increased market appeal, and the
probability of a higher return must be considered. The disposition program
should be documented to justify the use of the marketing tools. Field
Offices are responsible for ensuring that the use of any incentive is not
abused and does not subject the Department to fraud, waste or
mismanagement.
Several of the marketing tools have been revised. Revisions have
been made to the Cash Rebate which is now applicable to properties with a
sales price of $40,000 or less; the Home Buyers Protection Plan which will
permit Field Offices to pay up to $500 for a policy; purchasers are given
the opportunity to have the prepaid items included in the Line 5
deductions; and, the Property Inspection Service gives the Field Office
the option of correcting any defects found during the inspection, reducing
the sales price or allowing the purchaser to terminate the contract without
penalty. Two new sales incentives have been created. The Bonus to Renters
provides for renters to receive a credit for two monthly rental payments,
not to exceed $1,000. This is subject to a submission of a rental
agreement with the sales contract. The Pre-approval allowance permits
Field Offices to compensate purchasers who received pre-approval from a
lending institution prior to contract submission and successfully close
the sale. A credit of up to $250 will be given at closing.
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HSIP : Distribution : W-3-1, W-2(OGC)(H)(Z), W-3(A)(H)(ZAOO), W-4(H), R-1,
R-2, R-3, R-3-1(H)(RC), R-3-2, R-3-3, R-6, R-6-1, R-6-2, R-7, R-7-1,
R-7-2, R-8, R-8-1
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The definition for hard to sell properties has been revised and is
contained in the attached. Field and Regional Offices must closely monitor
the use of the reduced down payment to ensure that no more than 50 percent
of the Insured sales. In any Field Office involve a downpayment of less
than three percent. In addition, Field Offices must determine, on an
individual market or property basis, the appropriate level of payment of
financing and closing costs on proven hard-to-sell properties.
In the event there may be previously approved incentives or policy
deviations, those are terminated effective with the date of this Notice.
Please direct questions regarding this Notice to the Single Family
Property Disposition Division at (202) 708-1832.
Attachment
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Assistant Secretary for Housing
- Federal Housing Commissioner
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FISCAL YEAR 1994 SPECIAL MARKETING TOOLS
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FISCAL YEAR 1994 SPECIAL MARKETING TOOLS
SECTION I- INCENTIVES
Many of the incentives detailed herein are tied to hard-to-sell properties.
For purposes of implementing these incentives, hard-to-sell properties are
defined as a concentration of homes in a specific market area (not
jurisdiction wide) that remain unsold after six or more months in inventory
and are characterized by one or more of the following: large numbers of
non-HUD vacant properties; declining neighborhoods; severely depressed
economy; or other equally good cause.
The following incentives are available for use in Fiscal Year 1994. A
number of the incentives have been incorporated into PD Handbook 4310.5,
REV-2, as indicated by the paragraph reference, which is currently in
clearance.
1. BONUS FOR EARLY CLOSING (Paragraph 6-128b)
(Available to owner-occupant and investor purchasers)
As an incentive for closing prior to the established closing date,
Field Offices may allow at closing a flat bonus that will be
determined as follows:
Properties Purchased with a Sales Price of $25,000 or Greater:
$900 if sale closes within 15 days of contract acceptance.
$600 if sale closes within 16 to 30 days of contract acceptance.
$300 if sale closes within 31 to 45 days of contract acceptance.
$100 if sale closes within 46 to 50 days of contract acceptance.
Properties Purchased with a Sales Price Less Than $25,000:
$450 if sale closes within 15 days of contract acceptance.
$300 if sale closes within 16 to 30 days of contract acceptance.
$150 if sale closes within 31 to 45 days of contract acceptance.
$50 if sale closes within 46 to 50 days of contract acceptance.
Please note: The bonus may be credited to the purchaser, lender,
and/or broker, as the Field Office determines appropriate. The total
amount paid may not exceed the above stated amounts. Should the bonus
be credited to the purchaser, it must be shown on Lines 207 and 507 on
the form HUD-1, Settlement Statement. The bonus format described
above is based on a Field Office closing time frame of 60 days.
Should the closing time frame be less than 60 days, only the first two
bonuses of each category apply
2. BONUS TO RENTERS
(Available to owner-occupant purchasers only.)
To promote sales of properties to individuals currently renting their
place of residence, Field Offices are authorized to allow a credit to
owner-occupant purchasers an amount equal to two monthly rental
payments, not to exceed $1,000. In order to qualify for this credit,
the purchaser(s) must include a copy of their current rental agreement
with the submission of the sales contract. This credit may not be
substituted as the purchase's earnest money deposit HUD's tenants who
are current in their rental payments and are paying fair market rent
qualify for this incentive. This bonus may not be substituted for
payment of rent owed at time of closing.
The amount is to be shown on Line 207 on the form HUD-1, Settlement
Statement as a credit to the purchaser and Line 507 on the form HUD-1,
Settlement Statement as a charge to HUD.
NOTE: The cost of this incentive is not to be reflected in
determining the net to HUD on the sales contract
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3. CASH BONUSES TO BROKERS (Paragraph 6-128a)
(Available to owner-occupant and investor purchasers.)
Cash bonuses of up to $500 may be offered to brokers for hard-to-sell
properties. Although this sales incentive is encouraged, where deemed
appropriate, bonuses must not be offered so routinely that they become
expected by selling brokers. To claim an offered bonus, brokers must
include the bonus amount with the sales commission on Line 6 of the
Sales Contract.
4. CASH REBATE (Paragraph 6-133)
(Available to owner-occupant purchasers only.)
To promote sales of properties whose current value is $40,000 or less,
particularly those located in proven hard-to-sell areas, a cash rebate
of up to five percent of the actual sales price, not to exceed $2,000,
may be offered to owner occupant purchasers, for use as deemed
appropriate by the purchaser.
Eligible purchasers will receive a credit at the time of settlement in
the amount of up to five percent of the actual sales price, not to
exceed $2,000. This amount is to be shown on Line 207 on the form
HUD-1, Settlement Statement, as a credit to the purchaser and on Line
507 on the form HUD-1, Settlement Statement, as a charge to HUD.
Field Offices must notify the closing agent of each property that is
entitled to a cash rebate.
5. FINANCING AND CLOSING EXPENSES
(Available to owner-occupant and investor purchasers.)
On Line 5 of the Sales Contract, purchasers may specify a dollar
amount that HUD will then be expected to pay towards the purchasers'
financing and closing costs. Under normal market conditions, the
amount requested may not exceed five percent of the purchase price
(Line 3 of the Sales Contract). For proven hard-to-sell properties,
this amount may be increased up to six percent of the purchase price.
Field Offices shall determine, on an individual market or property
basis, the appropriate level, up to the five and six percent maximum.
In some instances, it may be that a lower percentage is sufficient
Regional Offices should oversee the limits established by each office
to ensure that financing and/or closing expenses are appropriate and
are not exceeded for any jurisdiction or market.
Since HUD has contractually agreed to pay the amount specified in
Line 5 of the Sales Contract, it is not necessary nor expected that
either a listing of allowable items or a price listing for those items
will be provided to sales brokers or closing agents. The purchasers
are free to use the Line 5 allowance towards their financing and/or
closing expenses as they deem appropriate. This may now also include
the payment on behalf of the borrower of those items required by the
lender to be paid in advance. The closing agent's responsibility, as
well as that of the Chief Property Officer, is to ensure that the
Line 5 allowance is not exceeded at settlement.
The fee for HUD's contract closing agent is not to be included in
Line 5 or considered in the best net calculation. Any notification
to brokers shall advise that offers to purchase may be enhanced by
claiming less than the maximum for both or either financing/closing
expenses and the sales commission.
6. HOMEBUYERS PROTECTION PLAN
(Available for owner-occupant purchasers only.)
To address the concerns of many homebuyers regarding the condition
of HUD's properties at the time of purchase and immediately
thereafter, Field Offices are authorized to provide an allowance,
payable at closing of up to $500, or the first year's premium,
whichever is lower, towards the purchase of a Buyers Protection Plan.
These plans typically provide protection against mechanical failure of
most household systems and appliances during the term of the contract.
Subject to a small deductible payment, the insurer agrees to repair or
replace covered equipment through authorized contractors.
Before implementing, Field Offices must determine there are reputable
firms in their jurisdiction offering such protection plans. The
broker and buyer will then be responsible for selection of a
particular company and for negotiation of a specific agreement. It
must be clear that HUD has no involvement whatsoever in regard to
performance under the plan of any contractor or repairman. At the
settlement, purchasers must present to HUD's closing agent the paid
receipt or the signed agreement for their homeowner's
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protection plan along with any additional money that may be required
for the plan.
If the purchaser provides a paid receipt at closing, they will receive
a credit at closing for the actual cost of the plan, not to exceed
$500. This amount is to be shown on Line 207 on the form HUD-1,
Settlement Statement, as a credit to the purchaser and on Line 507 on
the form HUD-1, Settlement Statement, as a charge to HUD. Should the
purchaser present an invoice requiring payment, HUD's closing agent
will remit the payment to the homebuyer's protection company on the
buyer's behalf and reflect payment on the reverse of the form HUD-1,
Settlement Statement, under "Additional Settlement Charges".
Field Offices must notify the closing agent of each purchaser that is
entitled to this credit.
NOTE: Should the company issuing the protection plan require a test
of the property's systems, it must be made clear that all expenses
related to the test, including rewinterization where appropriate, are
the responsibility of the purchaser.
7. HOMEOWNER'S ASSOCIATION ALLOWANCE
(Available to owner-occupant purchasers only.)
Field Offices with a large inventory of condominiums and townhouses
may consider paying on behalf of the purchaser, up to one year's
homeowners' association or condominium fees. To receive benefit of
this marketing tool, the buyer must be an owner-occupant purchaser.
Since this is an incentive, the cost should not be reflected in
determining the net to HUD on the Sales Contract. However, the HUD-1,
Settlement Statement, should reflect a lump sum payment by the closing
agent directly to the association.
Field Offices must ensure that payment of this incentive does not
become automatic or expected in every market area. Good judgement as
to its need and use is expected.
8. INCLUSION OF PREPAID AND FINANCING/CLOSING COSTS IN MORTGAGE
(Available to owner-occupant purchasers only.)
A. Inclusion of Prepaids
In those instances where escrow and prepaid items for which the
purchaser will be paying are unduly large, such as when taxes are
paid in advance, the mortgage may be increased by the amount of
such items. This may be used in connection with insured sales
only. Homeowners insurance is not to be included as a prepaid
in the mortgage.